Bitcoins, Altcoins, and other cryptocurrencies were one of the most significant hot topics back in 2017 when we are talking investments.
Many people got tempted to jump on a Bitcoin craze wagon during 2017. Some got lucky others burned their feet, depending on how and when they started investing in Bitcoins and other cryptocurrencies.
Me personally, I jumped on the wagon the worse possible time, when bitcoin reached its peaks around $18.000 in Dec. Now when I am writing this, the current price is around $8.500 for one bitcoin. It is less than half of what it was, bouncing a little up and down.
So, did I make a mistake putting my hard earned money into Bitcoins and other cryptocurrencies? Are Bitcoins, and other cryptocurrencies one big scam? A Ponzi Scheme you should stay far away from?
Is it really possible to make money from, what is just an open source piece of programming code, that everyone can copy?
In this article, I am going to cover all of this. Hopefully, you will get a lot wiser making your decision whether you should get into cryptocurrencies or not!
Before I start out, keep in mind that I am not a financial advisor. This post is not investment advice in any way. It is a view, an opinion on how I look at Bitcoins and other cryptocurrencies.
If you decide that you are willing to take risks and start investing in cryptocurrencies always make sure to do your research and due diligence.
What is Blockchain
No talk about cryptocurrencies without mentioning Blockchain. Where Bitcoins and altcoins are the currencies, Blockchain is the software running them.
Instead of storing valuable information centralized, like your banking information and that you own a house. Blockchain makes it possible to save valuable data, or blocks, de-centralized on a network of computers or miners. It is more secure than a centralized system because if one note is taken out by an intruder or hacker, the exact same information is still stored and verified on the other computers on the network.
With the Blockchain, you can add information or blocks to the chain and store it in chronological order. The information like Bitcoin stores as cryptography so no one can counterfeit it or change it. Bitcoin tracks the ownership of the digital cash so only one person can claim its ownership at a time. Also, you can just spend it once.
It Is Only The Beginning
The blockchain is much more than being able to make a transaction from one part of the world to another part. It is the first step into the future where centralized systems like, banks; big businesses will have less power over the individual.
With Blockchain technology, you can make your identity safe so no one can copy or steal it.
What About The Banks?
Banks are not blind to Blockchain, in fact, they are working on creating their own private Blockchain doing the same as the public ones, but in a closed system. Ripple, is an example of a cryptocurrency that the banking system finds interesting.
Where banks and other institutions also have a high interest in private Blockchain, Bitcoins and other altcoins mostly operate on public ones.
Is Bitcoin One Big Bubble That is Going to Burst Entirely?
Actually, it is many big bubbles and there are more to come!
What shares typically are going through in a year, is sometimes what cryptocurrencies are going thru in one day. Ever since Bitcoin came out in 2009, there have been many bubbles pushing investors to the edge. One of the biggest bubbles was back in 2011 where investors lost as much as 93% of their total investments to one of these bubbles. A later one, January 2018, Bitcoin dropped more than 50% in 16 days.
So If you want to become Bitcoin and Altcoin investor, prepare yourself for a very bumpy road. Learn the words “HODL,” which is crypto lingo and means HOLD. Bitcoins multiple bubbles are not disappearing anytime soon.
What Causing These Bubbles to Happen?
There are a couple of reasons why we are experiencing all these bubbles. First, market psychology, and the unexplainable factor X as I like to call it, are some of them. But often these bubbles are self-inflicted caused for one reason or the other, by human actions.
Government Control Regulations
The mindset behind cryptocurrencies are in governments eyes are very anarchistic. Since the ideology behind cryptocurrency, and blockchain is decentralization. You don’t have one organ to control it. Therefore governments are very skeptical.
So, when governments around the worlds want to regulate cryptocurrency or even ban bitcoin trading, it usually sends waves of shocks out, and the Bitcoin price drops massively.
Another reason is what Bitcoin communities like to call FUD. It stands for Fear, Uncertainty, and Doubt and happens when governments around the world talk regulation. It also occurs when hacking occurs. FUD often starts in communities and is because of gossip, or news stories that are easy to misunderstand.
Many Cryptocurrency Investors Don’t Have Investment Experience
Many crypto investors don’t have years of investment experiences behind them. It makes them too sensitive regarding the natural ups and downs in a market.
It creates a lot of volatility on the market, that on the other are biscuits for more experienced people and day traders.
If you know how to day-trade, you can make or lose USD 500 in a matter of minutes.
Pumping, Dumping, and Cornering
These practices are illegal in the traditional world of investments but frequently happen in the crypto world. It means a group of individuals gets together starting to buy up an altcoin to raise its value.
When the prices suddenly start to go up rapidly on the exchanges, it attracts more inexperienced investors who also begin to buy up the given altcoin. At a certain point, the group that initiated it all starts to sell fast for a profit. Left behind, is the group of people who had no idea that it was a pump and dump.
It is an approach that is quite easy to do with crypto assets with a smaller market cap because they are susceptible to how the market moves. Half or even more of their total value is traded in a matter of minutes.
Is Bitcoins The Currency of Criminals and The Underworld?
Ever since the Silkroad got exposed, which was a dealer network on the Dark Web, selling everything from guns to drugs, Bitcoins got a bad reputation. It was the preferred payment method buying goods on Silkroad, believing that the transactions were non-traceable.
The truth is that every transaction made using Bitcoins can be traced because it leaves a hash code in a blockchain. So FIAT, or regular money, is a better payment method for criminals to use. Here you still have the option that you can bury your money in your backyard if you want to hide them. You cannot do that with Bitcoins.
Bitcoins and Cryptocurrencies a Ponzi Scheme?
First, let’s be clear about what a Ponzi scheme is, in case you don’t know!
It is a setup where older investors get generated revenue paid by newer investors in the chain. The investors may believe that the generated returns are made from profits of financial trading, but they are not.
Bitcoins and altcoins are not Ponzi schemes; they are an asset class very similar to Forex, Bonds, and Shares.
However, there are a variety of schemes out there that either offer Bitcoin lending solutions or extra revenue in the form of a pyramid scheme system.
Simple advice? Stay away from them! First, the risk of losing your money is higher. Second, if someone you sign up under you, lose their money, they can sue you, and you will have to live with the guilt.
Investing in cryptocurrency is all about you and your investments, never drag someone else into it.
Crypto Tubers and Facebook Groups, and Other Communities
When you start investing in Bitcoins and other altcoins, you are curious and want to learn as much as possible. And for sure we are all looking for that piece of advice that can bring in a lot of profit.
But, in the end, you must be the one who makes the call regarding your investments. It is your own responsibility entirely.
In my research for this article, I have read about people blindly put their trust in an “expert,” for them to find out that this person was getting paid to recommend certain altcoins.
What About ICO’s?
ICO stands for Initial Coin Offering, and it is when a new company offering a cryptocurrency or token is entering the market. Here you can participate in buying ICO coins at discounted prices for as low as 0.001 cents or get other benefits.
You can compare ICO’s with Startup companies looking for capital from VC’s or Angel Investors. Depending on where the company is in the process, it is a high risk but high reward investment.
If you are lucky with an ICO, the initial investment of example 0.001 cent can double itself thousands of times. An example is Chinese NEO which gave ICO investors an ROI of 53,851.07%, according to ICOWatchList, from their initial investment. Another example is Utrust, a future online payment system similar to Paypal, here the current ROI is around 141.38%.
For investors, it may sound like a dream come true with a return of investment of as much as 53K% but keep in mind it is only a fraction of the released ICO’s that makes it. There are many scams, others are too vulnerable, and others just do not have a sustainable business idea.
Investing Being Blind
Where Angel Investors and VC, have all the tools they need to figure out if they want to invest in a Startup. Yes, they can even call the CEO at 4 a.m. if they’re going to, he will gladly answer his phone.
You as an ICO investor do not have the same tools available to make your research and due diligence.
You only have the ICO’s website, a white paper, a presentation of the team. For questions, you have a Telegram profile where you can chat with an overworked customer support person, sitting there answering questions, day and night.
You can then do your research on Google and at sites like Reddit and Github, to get more information and check out the hype there. Of course, you can also watch a couple of YouTubers promoting the ICO. Sometime they do it for free, other times they get paid. Trust the ones who are doing it for free.
Twitter, is another option where you can do your research, but be careful because there are a lot of hacked user accounts directing you in the wrong way.
90% Of All Startup Fails
According to Forbes, 90% off all Startup fails, and that is despite some of them being backed by VC’s and Angel Investors. Then imagine how many ICO’s who is going to fail in the future and how many investors who are going to lose their money?
So investing in ICO, I recommend you to do your homework and really know what you are doing! More importantly, you must believe in their vision 110%, and be ready to hold on to your investment years to come.
The Weakness Of ICO Investing
Many ICO’s investors today, typically spend 30 minutes reading the Whitepaper, skimming it thru, because some of them are very technical. Next, they spend 10 minutes checking the LinkedIn profiles of the team to see who they know. Finally, another 10 minutes are spent on Telegram asking the ICO’s representative, what exchange and when they expect the ICO’s to be tradeable?
These investors are thinking more about a fast reward and not so much about long-term investing with the company vision in mind. It creates a misalignment from the ICO’s and its investors.
Should You Invest In Bitcoins and Cryptocurrencies?
Rule number one, never invest money that you cannot afford to lose.
Rule number two, don’t spend your retirement on cryptoes.
Rule number three, repeat rule number one.
Cryptocurrency investing is a risky game.
Despite soon to be ten years old, Bitcoins and altcoins are still a very new asset class, and it is a rocky road for many years to come. As what happened to bitcoin in 2011 with a drop of 93% and the 50% drop January 2018, I believe there is more to come.
It will take years, for Governments to really understand the power of Blockchain and cryptocurrencies and implement regulations in proper manners. At the same time, you have the other half of the world who just want to ban cryptocurrencies.
So if you want to invest in cryptoes, you really got to stay cool and “HODL,” when there is blood on the street, and everybody wants to sell.
Maybe Huge Rewards To Come, Maybe Not!
Facebook shares increased 53% in 2017. Amazon did a little better with an increase of 56%. Netflix shares did 55%, Apple 55%, and finally, Alphabet (Google) shares did 33%. We call these for FANG shares and are the most valuable companies in the world.
In comparison, the value of bitcoin increased more than 1300% in the same period and went from around $1.000 in January 2017 to approximately $14.000 at the end of the year. It peaked around 19.458 USD Dec 17 according to World Coin Index.
Some investment gurus have claimed that the Bitcoin will rise to $50.000 in the future, others are saying it will drop to below $2.000. No one really can predict the future value of cryptocurrencies and how it will go.
For sure all us investors just want it to climb, like what FANG shares have been doing for several years now. We all want to get that pot of gold that early investors of Apple Macintosh got. It is probably the main reason why so many people are starting to invest in cryptocurrency in the first place.
But you got to have or develop a professional attitude about your investments. If it sounds too good to be true, it probably is.
Did I Make a Mistake Investing in Bitcoins and Altcoins?
I do not regret that I got started investing in cryptocurrencies. But my timing was horrible. I too got carried away in the euphoria that happens when an asset starts to climb in value like a rocket. You really feel that this is the right thing to do and that the value will never go down again. You just don’t want to miss out on the high potential.
But, looking through the back window of getting wiser. All it takes is just to stop for a little and don’t get carried away. Look at the history, the tends, and some candlesticks on a trade site. Here you will see and learn the logic; what goes up, must come down, buy low and sell high.
For now, I will keep my cryptoes and wait for the future. If I get scared now and decide to sell them, because the market once again gets bloody red, I for sure will lose my investment.
So my approach is “HODL,” and I will probably buy more if the prices get really low.
You Must Believe In The Technology
I will actually go that far to say, if you are only into cryptocurrencies for a quick buck, you are hurting the technology. Especially if you are into investing in ICO’s they are very vulnerable in their startup.
People like Vitalik Buterin the creator of Etherium is doing this because he believes that crypto and blockchain technology will create a better world.
So if you want to become a cryptocurrency investor, I highly recommend you to learn more about the technology behind and believe it in. Make sure you have the right mindset, a combination of wanting to make money, but also to support the technology.
Educate Yourself Before Investing in Cryptocurrencies
Before you invest in cryptocurrencies, I highly recommend you to educate yourself to learn more.
Before you dig into an exciting world of crypto, meeting new friends in the communities, I highly recommend you to learn the basics. The benefit of reading books is they are straight to the point and not colored by hypes, opinions, and gossips. You will encounter that a lot of online communities.
My Recommended Cryptocurrency Reading List
And to learn the basics of investing I highly recommend you to read one of Warren Buffet’s favorites:
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